Two Investment Advisers Are Comparing Performance

question 13

Multiple Choice

Two investment advisers are comparing performance. Adviser A averaged a 20% return with a portfolio beta of 1.5, and adviser B averaged a 15% return with a portfolio beta of 1.2. If the T-bill rate was 5% and the market return during the period was 13%, which adviser was the better stock picker?

• A) Advisor A was better because he generated a larger alpha.
• B) Advisor B was better because she generated a larger alpha.
• C) Advisor A was better because he generated a higher return.
• D) Advisor B was better because she achieved a good return with a lower beta.

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Definitions:

Compensating Balance

A compensating balance is a minimum account balance that a borrower agrees to maintain in an account with a lender as part of a loan agreement.

Footnotes

Notes at the bottom of financial statements that provide additional details and clarifications about the financial data presented, offering insights into accounting policies and specific line items.

Cash Control

Includes the methods and procedures that are implemented to monitor, manage, and protect the company's cash transactions and balances.

Safeguarding Cash

Implementing measures and controls to protect cash assets from theft, fraud, or misuse.